The ability to make informed decisions based on reliable data is what separates thriving organisations from those that struggle. With the right information, CFOs
are likely to see projects succeed, risks mitigated, and resources efficiently allocated. However, when information is flawed or misinterpreted, the consequences can be dire. In short, asking the wrong questions (or asking questions based on bad data) can lead organisations astray.
CFO’s framework for strategic inquiry
To navigate these challenges, CFOs must often confront brutal facts while maintaining faith in a positive outcome. This balance is best achieved by asking questions that reveal the true state of affairs and guide effective action. Here’s a framework to support this process:
Core elements of strategic inquiry
- Building resilience into corporate culture: Resilience is built by asking questions that uncover both successes and failures. By understanding these, CFOs can celebrate small wins, learn from setbacks, and keep the team focused on the long-term vision.
- Transparency and open communication: CFOs must ask questions that uncover the sometimes harsh realities facing the organisation. This ensures open communication within the team and with stakeholders, providing a clear picture of the financial health and challenges.
- Scenario planning and stress testing: CFOs must ask questions that identify potential risks, assess their impact and likelihood, and prioritise them based on strategic objectives. Effective scenario planning begins with asking what-if questions that explore a variety of future scenarios, not just the most likely ones.
Case Study: Bank of the Ozarks
How does this framework improve resilience? During the 2008 financial crisis, banks that fared better asked great questions during their scenario planning. This is evident in the success stories of large banks that not only survived but thrived at their (former) rivals’ expense. Apart from JP Morgan type examples, an interesting case is the story of Bank of the Ozarks (Bank OZK).
Bank OZK operates with over 240 offices in seven states, including Arkansas, Georgia, Florida, North Carolina, Texas, California, and Mississippi, and has nearly $40 billion in total assets. This regional bank combines a risk-averse, conservative approach with the ability to pivot and take strategic risks when opportunities arise. Key factors contributing to their success include:
- Conservative Lending Practices: Bank OZK avoided the risky lending practices prevalent among many financial institutions leading up to the crisis. The bank focused on maintaining a high-quality loan portfolio by asking the right questions about borrowers’ creditworthiness and avoiding subprime and other high-risk loans.
- Strong Capital Position: The bank maintained a strong capital base and liquidity position, which provided resilience during the financial downturn. This was a result of careful financial planning and conservative balance sheet management.
- Strategic Acquisitions: Bank OZK capitalised on opportunities to acquire distressed assets and other banks at favourable terms during and after the crisis. This strategy helped the bank grow and expand its footprint while others struggled.
Lessons for CFOs and financial leaders
For CFOs and financial leaders, the story of Bank OZK serves as a valuable lesson. It’s essential to cultivate a risk-aware culture while remaining agile enough to capitalise on emerging opportunities. By combining a conservative approach with strategic risk-taking, organisations can weather storms and thrive in changing market environments.
To succeed as a CFO, it’s crucial to embody the qualities of a proactive problem-solver. These leaders possess deep insights into market trends, regulatory changes, and technological advancements. They utilise this knowledge to foresee potential challenges and opportunities, ensuring their organisation remains competitive and resilient.
“Leaders are problem solvers by talent, temperament, and choice. For them, the new information environment should seem less a litany of problems than an agenda for action.” – James Thurber, The New Yorker
Framework for mastering intraday liquidity
In the language of liquidity, being a proactive problem-solver translates to being conservative around the risks that can kill you. This entails a vigilant and proactive approach to monitoring and managing cash and securities in real-time. Achieving this level of precision and oversight can be challenging, especially with traditional tools that often lack the necessary visibility and efficiency, resulting in missed opportunities.
Transitioning towards innovation and product development, particularly in the liquidity domain, demands a blend of creative discipline and sensitivity to qualified data. It’s not merely about introducing novel solutions but ensuring that they align with overarching business strategies, enhance service delivery, improve regulatory compliance, and drive desired financial returns. Thomas Meiman, a seasoned liquidity professional with decades of product experience, including his time at BNY Mellon, advises:
“Start with real-time data to maintain a continuous view of the balance sheet throughout the day. If you’re not already doing this, make it a priority. This approach provides a clear indication of the balance sheet’s health, helping to identify funding risks and vulnerabilities. Additionally, it can reveal opportunities to utilise trapped or stranded liquidity pools more effectively.”
What good data can do
Embracing this approach to innovation unlocks the potential of a bank’s data, offering a myriad of advantages. For instance, using Realiti Insights, a recent client unearthed $300 million of trapped liquidity, resulting in substantial savings. While big banks may invest heavily in sophisticated systems for effective money management, Realiti Insights provides similar analytic capabilities to smaller banks at a fraction of the cost and with rapid implementation.
Ultimately, the value of comprehensive liquidity management lies in knowing precisely what assets are available, where they are located, and how they can be leveraged – versus when obligations fall due and the market conditions in which those assets and liabilities are being managed or realised. Without this understanding, significant opportunities for value creation may go unnoticed, inviting scrutiny from stakeholders keen on maximising returns.
Without automation, efficiency will be hampered by manual processing and human error. If firms find it difficult to get real-time information, it will be even more challenging to manage risk proactively, find sustainable solutions, and innovate. The key to success is often the ability to adapt and take action. So the question remains, how good is your information?
Don’t guess, know.
